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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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We are a small Consitutional club and we are struggling to

Resolved Question:

We are a small Consitutional club and we are struggling to understand how VAT is calculated. I understand that we pay 20% vat on purchases say from our brewery. We then sell on to our members.
If we purchase £100 worth of drinks and pay £20 vat. how much vat must we pay when we sell all that stock for £250?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

You have purchased stock for £100 and you pay £20 VAT on it being 20% of £100.

If you sell that stock for £250, it depends whether the price is ex VAT or incl VAT.

So I will give you both figures ...
If your stock is sold for £250 + VAT then the VAT is £50 being 20% of £250.
If the £250 value is inclusive of VAT then your VAT is
250 x (20/120) = £41.67 and your ex VAT price is (250.00-41.67) = £208.33
VAT at 20% on £208.33 is £41.67.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.

Assume your explanation No.2 we sell inclusive of Vat.

In my world, the total amount of VAT on £100's worth of goods is :-

£20 input tax we paid to the supplier,

£41.67 tax paid by the end user,

Total £61.67

Am I right looking at it like this. I thought the Vat was paid by the end user. This is why I am confused. Also VAT if my interretaion is correct is 61.67% not 20%.

Please advise

Expert:  taxadvisor.uk replied 3 years ago.
Philip, thank you for your reply.

As you are a trader and not the end user (consumer), you recover VAT paid on your purchases and this is not passed to the end user as such.

What the end user is paying is VAT on your sales figure that are based on a purchase price excluding the VAT. The VAT man gets £41.67 (output tax) in the end, per your example and not £61.67 because you have reclaimed £20 as input tax..

VAT rate is 20% .. and it is a fixed percentage based on variable price..

I hope this is helpful.
Customer: replied 3 years ago.

I have spent hours trying to get this explained. Thank you very much for your explanation.

This is the first time i have used this method of problem solving, and it has proved to be very successful.

Well worth the price

Many thanks

Phillip

Expert:  taxadvisor.uk replied 3 years ago.
Philip, thank you for your reply.

I am pleased I have been helpful.

If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get credited for it.

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 3 years ago.
I thank you for accepting my answer.

Best wishes.
Expert:  taxadvisor.uk replied 3 years ago.
Your reward of a generous bonus is greatly appreciated.

Best wishes
Customer: replied 3 years ago.

My farther told me as you sow so shall you reap. Good service deserves good rewards.

Expert:  taxadvisor.uk replied 3 years ago.
Phillip, thank you for your good words.

Best wishes.